Jun 302015

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By G. Steven Bray

Well, Greece went and did it. They defaulted on their IMF debt. Markets reacted rather hysterically yesterday driving interest rates down. Now what?

It’s still possible Greece and its creditors will find a last-minute, face-saving solution that will float Greece a little longer. However, the Germans seem tired and scared of the grandstanding Greek politicians. If the Germans cave, they might invite other struggling nations to toss their austerity plans. In any event, the Greek president has called a referendum this Sun to let his people decide whether to accept its creditors’ latest offer. A no-vote could roil markets again next Mon.

But the real question is whether the resulting uncertainty can reverse the current market sentiment towards higher rates. I said last week that any rate rally would be temporary, and I’m still leaning that way. US economic data has been stronger of late, with both retail sales and wages growth showing a pulse. Most of the Federal Reserve governors seem intent on raising short term interest rates before the end of the year. I think it will take more than Greek drama to turn the tide.

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